Mike Papa interprets - You get ALL your money back! All of it!

What you hear and see:

You get ALL your money back!  All of it!  After an initial deposit, you pay nothing, and when you cancel, you get it all back. We’ve been around since 1794 – must be doing something right.

What you don’t:

• This is a homeowners insurance company selling policies in Maryland and Pennsylvania directly to the consumer – and they have been doing this for centuries
• The primary selling point – the differentiation from the rest of the marketplace – is HOW one pays, not FOR WHAT one pays.
• Paying once (a “deposit”) and getting that deposit back – very appealing on the surface
• The carrier does this using the economic vehicle of compounding. They keep your deposit – about 11.2 times what you’d pay for an annual policy according to their web site – and make money on your money. So, a $400,000 home that might cost $1500 traditionally requires a $16,800 deposit
• Anyone can do this themselves , and likely do A LOT BETTER. Take the difference of the deposit ($16,800) and a premium ($1500) and invest that $15,300 in the stock market.  Assuming a 9% return – average over the past 100+ years – and that $15,300 becomes $36,200 after just 10 years.  One can pay a lot of premium with $36,200, and then some.
• That $3620 split amount 10 years - $3620 – does not compare well with $1500
• Does the carrier require more “deposit” as home values go up? Oh yes
• Does the carrier handle other lines of insurance – like auto? Oh no.